Deutsche Post AG Earnings Call Insights: EXPRESS Material Costs and Mail Volume Impact

Deutsche Post AG (AMEX:DPW) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

EXPRESS Material Costs

Neil Glynn – Credit Suisse: First of all with respect to DHL EXPRESS, I know there is material costs which are comfortably the largest part of the EXPRESS cost base, continue to rise as a proportion of revenue. Just interested, does this at all worry some of you for (fewer) margin gains and can your increasing scale help you can control material costs better? Secondly, just a question on stamp price rises and obviously the implement is as of the 1st of January, how you seen any noteworthy push back in terms of volumes on that front yet? Then finally, a few days ago there was an announcement with respect to the Postbus venture, just interested in the rationale for the venture and its expected benefit for MAIL or the broader group?

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Lawrence A. Rosen – Finance, Global Business Services: So the EXPRESS material cost line tends to jump around with fuel cost changes, I would not read anything into that in terms of our ability to generate increased margins. It also has to do with higher volumes of course. So for the stamp prices and the volume effect, we have not seen a noticeable volume effect rising as a result of the stamp price increases. That is what we suspected would happen, but of course for the first price increase in 15 years, we had to wait to see the actual evidence and now we’ve seen in Q1 that probably the stamp price increases had very little impact on volumes. So, yeah, for the (Postbus), we are working our way into that market in a joint venture with ADAC, the German Automobile Association and part of the rationale for it is that it’s a network business as is the postal business and so it’s one we are very familiar with. We have a presence all over Germany and so get some potential synergies from ticket sale locations, for example. So it’s a market that is just really beginning due to a change in regulation and one we think the good names of Deutsche Post and ADAC together with their substantial capabilities in the German market should give us a good chance to succeed.

Mail Volume Impact

David Ross – Stifel Nicolaus: Could you talk a little bit about any volume impact that was seen in the first quarter in MAIL from the strikes that were going on and then maybe some details on the contract that was recently released or reached with parity?

Lawrence A. Rosen – Finance, Global Business Services: Okay, so, yeah, there was actually very little volume impact from the strikes. As opposed to a general strike, these strikes were so-called warning strikes which were done during the course of negotiations, and actually affected only a very small percentage of the markets and was done in different cities or areas on different days, and so volumes that might have been delayed by a day could be delivered on the next day. So the volume impact was next to zero, I would say. So, the contract that we’ve reached is one which runs from April 1 of this year through the end of May in 2015, so, it’s 26 months in total. It provides a wage increase starting on August 1st of this year of 2.6% and then another increase in October of next year of 3.1%, which extends then until the end of May of 2015.

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David Ross – Stifel Nicolaus: Then we’re halfway through the second quarter. Have you guys seen any improvements to the airfreight markets or are there other trends that you’re seeing that give you confidence that GDP growth is going to accelerate from the 2% you saw in the first quarter to the 2.5% to 3% you’re keeping for the year?

Lawrence A. Rosen – Finance, Global Business Services: On the later, we really haven’t seen any evidence of that. We have seen some quite encouraging data especially coming out of Asia from Shanghai and Hong Kong in the last couple of weeks on positive growth trends in airfreight. Though you know it’s probably too early to draw any concrete conclusions as to whether that’s going to be a trend or not.